WW International, Inc. (WW) Earnings Call Transcript & Summary

Thanks, everyone, for joining us good morning. I'm Lauren Schenk, Morgan Stanley small mid-cap internal analyst. I'm excited to be joined this morning by Sima Sistani, Weight Watchers's CEO; and Heather Stark, the CFO. Before we begin 1 disclosure on my end, please note that all important disclosures, including personal holding disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at www.morganstanley.com\researchdisclosures or at the registration desk.

So Sima, it's been about a year since you joined Weight Watchers. What initially attracted you to the business, and the opportunity to lead as CEO?

Yes. So I actually joined Weight Watchers in 2014 as a member first. And at the time, I was really struggling with my postpartum weight and developed a thyroid condition and even though my mother was a registered dietitian, I struggled. And as opposed to -- I tried every snake oil and bad that was out there on her recommendation. I started Weight Watchers. And it worked. Between the accountability, the science back program, the community, they've made the -- even though I have the education, I've grown up in a house with a registered dietitian, I needed that to succeed. And so it's a funny story because back in -- later in 2020 fast forward, I'm on a walk, and I'm listening to the Oprah's podcast, and she's talking to Tina Fey, who's a lifetime Weight Watchers. And there -- and Tina is talking about how she's not on other social, but she loves Weight Watchers because it's such a positive community. And it occurred to me in that moment as I'm building a house party, "oh, wow, this is a social network". You come in post a paywall, you're connected with other people who have a shared interest and they're expressing their vulnerabilities. And this whole time, I'm trying to think about ways to build empathy and to digitize social relationships. And the opportunity was right in front of me for a product that I knew and love. So I reached out to the Board at that time. I was interested in getting involved at the Board level. The timing wasn't right. And when they called me 2 years later, it was for this operating role. And I jumped at the chance because I could take my background in growth tech and social and map it to something that has the opportunity to have outsized, massive health outcomes for people. And I keep saying, what we are really doing is building a Digital blue zone. Blue zones are places in the world where people have longevity. And it's not just because of what they eat or how they move. It's their social circles that keep them accountable to healthy habits. And yes, I'm very excited to be here. And I'm almost at my 1-year anniversary, right?

Great. [Technical Difficulty] the past year.

So I feel like an end with a real clear line of sight of what I wanted to achieve from a product perspective given my experience as a member. And I think I was anticipating technical debt, which actually wasn't the case, it was more organizational debt. So on the technical side, it was really about building the right culture around the stack that we had, being more data informed, product-led, agile development and putting a culture bias to action so that we could have a better throughput in terms of our shipping velocity. And on the organizational side, I realized that Weight Watchers, even though was now 80% Digital, you have -- over 70% of our subscription revenue is coming from Digital. We're still operating like a retail company, not like a tech company. So it was immediately about building a Digital-first culture, removing things like the GM layer, global team, having sort of a member-first standpoint, data-informed A/B testing processes, doing everything from basically, I think, some of the best practices that are obvious in Silicon Valley as we find ourselves here today and bringing them to Weight Watchers. And the best part was there was a group of people who are really ready for that. We did have to do some restructuring to get ourselves there and put more wood behind fewer arrows. But ultimately, I think we have a great team in place to execute.

Great. Let's move to the big news of this week, your entry into the clinical weight management space with the acquisition of Sequence. What initially attracted you to the business? And maybe talk about how you're thinking about integrating the core Weight Watchers product?

So being an evidence-based program, we're always following the science. We're seeing and looking at the advancements. And what's happening across the clinical pathways, it's not a fad. It's not a trend. These are really sound advancements in the science of obesity. And what is clear is that alongside lifestyle and behavior change therapies, for some, there are biological and genetic underpinnings that need to be addressed with medication. And I think it was clear to us that the science is moving in that direction. And this is an opportunity for us to add a lot of value to the consumer, who is trying to understand the space, who will need care management through the process, who is looking for conveniences. And so there was a place for us and a responsibility to really lead from a point of science. And the other piece about this is, I think, it's really important to understand that these medications, they're meant to be in conjunction with lifestyle behavior change. What they do is help the adherence to those changes. And that becomes an and not an or. So ultimately, if we are the leaders in weight loss solutions, then we should be that across the spectrum, full stack, whether that is lifestyle, whether that's functional, whether that's clinical. And I'm really excited by Sequence and what they can help us bring and add value to our member network.

Great. If you look at the landscape of businesses like Sequence, what was it about that business in particular versus the competitives that attracted you to it?

Sure. When I started last year, I didn't audit of all the new modalities that are out there to understand them better. And we've kind of quickly recognized this as an area that was moving quickly, and we did a build-versus-buy analysis. And we met with the landscape -- with the various companies in the landscape, and what was so clear about Sequence was that it was a complement. They have taken a tech-first approach. They've built a platform that is where the UX is completely simple and delightful for both the clinician and for the patient. They've taken the complex process around pre-authorization, which is something that is being done manually with a lot of the other places. They've taken it and put it on tech rails, such that it makes the program scalable, it makes the access easier. The team, they're -- it's a great team. They are entrepreneurial, but they've been founder several times over. That being said, they agree with our sentiment that this isn't a place to move fast break things. This is a space where you have to approach it responsibly. They're looking at a wide formulary. They've taken themselves out of the process, just connecting their -- the patient with the clinician and just making that experience more simple. And then ultimately, look, we looked at the numbers. They have been around a year. They've already have 24,000 active members without marketing. It's completely word of mouth. The MPS is so high on their program. They're building towards -- they have a $25 million annual run rate. So they're profitable. And between all of those things -- and their excitement and their connection to the vision of what we're trying to do, we saw, okay, now we can pair that up with all of the things that we index then where we spike on community, and we know that that's going to be an important part of this. We spike on science fact, lifestyle behavior change programs. And between that and what they do well, it was a puzzle piece that just could come together very seamlessly.

Great. As you think about your existing Weight Watchers base today, do you have data on what percentage of people who have a BMI of 27 or 30 or higher? And I think those are -- 2 of those numbers or there are some of the qualifiers for taking these drug? And is there any risk that having access to these sort of drugs makes them stay on Weight Watchers programs for a short period of time?

Yes. So if you look at our membership base, about -- over 70% have a BMI of 27 or higher, just over 50% have a BMI of 30 or higher. So ultimately, though, it's still about -- and I should say that is at the time of subscription. So this is -- it's about whether it's medically appropriate. Even if you have that BMI, in some cases, there need to be other health indicators. And I think that's what we want to provide is if this is a pathway that the member chooses, they have Sequence as an option. But this is a in conjunction with the Weight Watchers program because there are a lot of side effects we know with these drugs. It's important that they -- that we help address some of the things that can come up around muscle loss, nutrient density and how you are adhering to your program is going to be really important to minimize those side effects, also the community. We know that this is something that people are facing alone and they want more support, not just from a peer-to-coach care team perspective, but from a peer group perspective. That's also something that we can provide. And the convenience element is so important. The ongoing ability to get the advice you need around how you titrate these dosages, like it's not like you get the prescription and then it's over. You have to continue to revisit that every month. And then alongside that, again, the -- you have to get preauthorized every single time that, that happens. So there's actually a -- it's a high touch, high support platform.

Interesting. Let me just turn back to the core business. You've talked a lot about the importance of community to Weight Watchers. How do you think about Weight Watchers in better delivering that community aspects in a digital world?

I mean this is what I've done, right? Between Tumblr and Houseparty and Fortnite is think through third spaces. And the workshop experience has been that gold standard for many years, but COVID really catalyzed the mix shift to Digital. And in a lot of ways, the app didn't evolve. It's still meant -- like a second screen tool essentially to the workshop experience. So we're building that from a Digital-first standpoint, and you can look to really see that turnover in the second half of the year with features like chat and progress. And there's a lot more fun things that we have planned on our product road map to really bring that to life and help people stay connected. And I think the community aspect is really important because that's what drives retention. In a lot of ways, we want you to be so successful that you don't need it. But in order to kind of have that maintenance mode to continue to be successful, to take the successes you've had and lived and cheer, you've lived in experiences, that's what makes the program special. That's what was happening in the workshops. And so the community enablement is what keeps people there. You come for the weight loss, you stay for the community.

All right. One of the hallmarks of Weight Watchers in the past decade has been the biannual food plan innovation. Do you feel like that's build the right strategy for the business going forward? Or will it be less emphasis on kind of the food plan piece?

Yes. I mean we're now all about the evergreen innovation. Look, we just announced one of the biggest innovations we have and it's not time to any sort of particular seasonality or moment, but time to how can we solve a problem for our members. And that's how we're going to be thinking about things. We introduced a simplified program. We'll be introducing chat and some other great features in the second half of the year. I don't -- I think we really want to smooth out the curve that has existed before the volatility that has existed before around our business. And the way you do that is by having an evergreen innovation strategy that's always on.

Okay. Maybe let's turn to marketing. In connection with the planned launch this fall, you're shifting some of your marketing from 1Q into 3Q. Can you talk about the rationale for that? And how you -- what seasonality you've seen from an LTV to CAC perspective, historically?

Well, I'll let Heather add on here, but I'll start by saying that, again, I think that the decision to move almost $20 million into the second half of the year has to -- goes back to what I was just talking about before in the past where a lot of the attention was in January, I think there's an opportunity for -- to address member problems throughout the year. And we know we have exciting things coming in the second half of the year. We want to map our media spend to those moments. And when you map spend to features that add value, it drives organic, too. So if the efficiency increases from a CAC perspective. So that was a part of it. The other part of it is around just overall performance, media efficiency.